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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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The state of crypto – May 2023
Mads Eberhardt
Cryptocurrency Analyst
Summary: The Ethereum Shanghai hard fork triggered an increase in exchange balances of Ether, dormant circulation, and circulating supply of the last five years, as holders mainly reshuffled staked Ether and staking rewards of the past more than two years. The world’s largest cryptocurrency exchange Binance is expected to distribute staked Ether and staking rewards to clients in the next couple of days, however, we do not expect that event to spark heavy selling pressure.
Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.
Short-term
Ethereum successfully implemented the highly anticipated hard fork called Shanghai – or Shapella – on the 12th of April. Among other minor advances, the most noted addition was the technological possibility to unstake Ether. This slowly opened the floodgates to the 19.2mn staked Ether worth about $37bn at the time, some of which have been staked since the 1st of December 2020, effectively locked for about 2.5 years. This amounts to more than 20% of the total circulating supply of Ether. The option to unstake Ether has caused an intense reshuffle of staked Ether, alongside staking rewards for the past more than two years. It is arguably the reason for the slight uptick in exchange balance and dormant circulation of Ethereum in April.
In particular, the exchange balance of Ether increased a whole lot yesterday on the 1st of May, as Ether worth $505M was transferred to the world’s largest cryptocurrency exchange Binance. At first sight, it appears to be an unknown wallet transferring the Ether, however, it is a transfer from Binance itself, specifically from its wallet with its clients’ staked Ether and staking rewards. Binance is likely to distribute the Ether to clients in the coming days and weeks. This may increase selling pressure, in case many clients decide to liquidate the Ether. However, we do not expect the majority of the holders to do so, considering that the option to unstake Ether has so far triggered much less selling pressure than anticipated.
Long-term
The circulating supply of the past five years continued to marginally decrease for Bitcoin in April, whereas it increased significantly for Ethereum. The latter was primarily due to the Shanghai hard fork, as it has set off dormant wallets to primarily start to stake. With such a large jump in a single month, the estimate of how much Ether nobody has access to as it is lost in wallets must be lowered, increasing the real circulating supply.
Contrary to March, crypto ETPs, mutual funds, OTC trusts, and other exchange-traded products saw an inflow in April. This indicates that more traditional investors acquired crypto in April, but it has a somewhat immaterial impact when zooming out at the whole crypto market.
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